Dr. Leonidas Zelmanovitz, Ph.D., an FCS parent, visiting scholar at George Mason University and author of The Ontology and Function of Money, visited our AP Macroeconomics class to speak on how monetary policy affects market decisions.
Money principally functions as a generally accepted medium of exchange. Societies are made up of individuals in pursuit of their own goals; specialization of labor results in higher productivity, while demand creates the need for trade. Assigning monetary values to goods and services allows us to efficiently make exchanges, “cooperating” while simultaneously acting in our own best interest.
In his lecture, Dr. Zelmanovitz touched on the major theories about the nature of money. Keynesian economics holds that money is a charter, defined and given value by the state. A more critical theory, defended by distinguished economists such as Friedrich Hayek, observes that money derives value from society’s needs and resources; sound money cannot be assigned artificial value without severely damaging the economy.
Dr. Zelmanovitz outlined the history of money, from the raw metals of the Bronze Age through the origins of “modern money” in the invention of banknotes. Coinage, he explained, was invented by the Lydian government circa 600 B.C. to conveniently pay for official state expenditures. The original state-monopolized coinage was made from precious metals, which retain value beyond their use as currency. Banknotes were initially created to represent reserves of precious metals held by the banks; later, state-sponsored banks began printing money as a way to reduce the interest rate on loans to the government. Without a standard for paper money, the value of currency could be artificially manipulated, leading to short-term benefits for the government but long-reaching consequences for the country.
Our AP Macroeconomics students posed complex questions after the lecture. Areas of interest included the economics of Marxist states, the causes of failing economies in modern nations, how countries respond to the imposition of new systems, the value of non-scientific data and the viability of privately-produced currency.
We would like to thank Dr. Zelmanovitz for sharing his time and experience with this thought-provoking lecture. Our students will appreciate this foundational knowledge of monetary theory as they continue to prepare for the AP Macroeconomics exam.